WSFS FINANCIAL CORPORATION OVERVIEW
WSFS Financial Corporation (WSFS, and together with its subsidiaries, the Company) is a savings and loan holding company headquartered inWilmington, Delaware . Substantially all of our assets are held by our subsidiary,Wilmington Savings Fund Society , FSB (WSFS Bank or the Bank), one of the ten oldest bank and trust companies inthe United States (U.S. ) continuously operating under the same name. With$21.0 billion in assets and$58.1 billion in assets under management (AUM) and assets under administration (AUA) atMarch 31, 2022 ,WSFS Bank is the oldest and largest locally-managed bank and trust company headquartered in theGreater Philadelphia andDelaware region. As a federal savings bank that was formerly chartered as a state mutual savings bank,WSFS Bank enjoys a broader scope of permissible activities than most other financial institutions. A fixture in the community, we have been in operation for more than 190 years. In addition to our focus on stellar customer experience, we have continued to fuel growth and remain a leader in our community. We are a relationship-focused, locally-managed, community banking institution. Our mission is simple: "We Stand for Service." Our strategy of "Engaged Associates , living our culture, enriching the communities we serve" focuses on exceeding customer expectations, delivering stellar experiences and building customer advocacy through highly-trained, relationship-oriented, friendly, knowledgeable and empowered Associates. As ofMarch 31, 2022 , we had eight consolidated subsidiaries:WSFS Bank ,WSFS Wealth Management, LLC (Powdermill®),WSFS Capital Management, LLC (West Capital ),Cypress Capital Management, LLC (Cypress),Christiana Trust Company of Delaware® (Christiana Trust DE),WSFS SPE Services, LLC ,The Bryn Mawr Trust Company of Delaware (BMT-DE), and 601Perkasie, LLC . The Company also has three unconsolidated subsidiaries: WSFS Capital Trust III, Royal Bancshares Capital Trust I, and Royal Bancshares Capital Trust II..WSFS Bank has five wholly owned subsidiaries:Beneficial Equipment Finance Corporation (BEFC), 1832Holdings, Inc. ,BMT Insurance Advisors, Inc. (BMT Insurance Advisors ),Bryn Mawr Equipment Finance, Inc. , andKCMI Capital, Inc. (KCMI), and one majority-owned subsidiary,NewLane Finance Company (NewLane Finance®). Additionally, WSFS and the Bank acquired certain subsidiaries in the merger ofBryn Mawr Bank Corporation (BMBC) with and into WSFS onJanuary 1, 2022 , and the merger of TheBryn Mawr Trust Company with and into the Bank (collectively, the BMBC Merger), pursuant to the agreement and plan of merger, by and between WSFS and BMBC, dated as ofMarch 9, 2021 (the BMBC Merger Agreement) that are not named herein as they are not integral or significant to our business. OnApril 1, 2022 , WSFS completed the merger of Christiana Trust of DE and BMT-DE. The combined organization will retain and operate underThe Bryn Mawr Trust Company of Delaware name. Additionally, BMEF merged with and into BEFC effectiveApril 1, 2022 . EffectiveApril 29, 2022 , KCMI, aWSFS Bank subsidiary acquired in the BMBC Merger, was sold to a third-party financial institution. KCMI specializes in providing non-traditional commercial mortgage loans to well-established small businesses throughoutthe United States . As ofMarch 31, 2022 , KCMI had$55.5 million of net loans. This sale and subsidiary mergers occurred during the second quarter of 2022 and are not included in ourMarch 31, 2022 unaudited Consolidated Financial Statements, and does not have a material impact on our unaudited Consolidated Financial Statements and related disclosures. Our banking business had a total loan and lease portfolio of$11.3 billion as ofMarch 31, 2022 , which was funded primarily through commercial relationships and retail and customer generated deposits. We have built a$9.1 billion commercial loan and lease portfolio by recruiting seasoned commercial lenders in our markets, offering the high level of service and flexibility typically associated with a community bank and through acquisitions. We also offer a broad variety of consumer loan products, retail securities and insurance brokerage through our retail branches, in addition to mortgage and title services through our branches and WSFS Mortgage®, our mortgage banking company specializing in a variety of residential mortgage and refinancing solutions. Our leasing business, conducted by NewLane Finance®, originates small business leases and provides commercial financing to businesses nationwide, targeting various equipment categories including technology, software, office, medical, veterinary and other areas. In addition, NewLane Finance® offers captive insurance through its subsidiary, Prime Protect. Our Cash Connect® business is a premier provider of ATM vault cash, smart safe (safes that automatically accept, validate, record and hold cash in a secure environment) and other cash logistics services through strategic partnerships with several of the largest networks, manufacturers and service providers in the ATM industry. Cash Connect® services non-bank and WSFS-branded ATMs and retail safes nationwide, and manages$1.9 billion in total cash and services approximately 29,300 non-bank ATMs and approximately 6,700 smart safes nationwide. Cash Connect® provides related services such as online reporting and ATM cash management, predictive cash ordering and reconcilement services, armored carrier management, loss protection, ATM processing equipment sales and deposit safe cash logistics. Cash Connect® also supports 630 branded ATMs for WSFS Bank Customers, which is one of the largest branded ATM networks in our market. 51
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Our Wealth Management business provides a broad array of planning and advisory services, investment management, trust services, and credit and deposit products to individual, corporate, and institutional clients through multiple integrated businesses. Combined, these businesses had$58.1 billion of AUM and AUA atMarch 31, 2022 . WSFS Wealth® Investments provides financial advisory services along with insurance and brokerage products. Cypress, a registered investment adviser, is a fee-only wealth management firm managing a "balanced" investment style portfolio focused on preservation of capital and generating current income.West Capital , a registered investment adviser, is a fee-only wealth management firm operating under a multi-family office philosophy to provide customized solutions to institutions and high-net-worth individuals. WSFS Institutional Services® provides trustee, agency, bankruptcy administration, custodial and commercial domicile services to institutional, corporate clients and special purpose vehicles. BMT-DE and Christiana Trust DE, which merged onApril 1, 2022 , provide personal trust and fiduciary services to families and individuals across theU.S. underThe Bryn Mawr Trust Company of Delaware name. Powdermill® is a multi-family office specializing in providing independent solutions to high-net-worth individuals, families and corporate executives through a coordinated, centralized approach. WSFS Wealth Client Management serves high-net-worth clients by delivering credit and deposit products and partnering with other Wealth Management businesses to provide comprehensive solutions to clients.BMT Insurance Advisors is a full-service insurance agency, through which the Bank offers insurance and related products and services to its customer base. This includes casualty, property and allied insurance lines, as well as life insurance, annuities, medical insurance and accident and health insurance for groups and individuals.
As of
Highlights for Three Months Ended
Results and other notable items include the following:
•BMBC Merger
•We successfully closed the BMBC Merger on
•The total value of consideration paid of
•The BMBC Merger initially added
•We recorded$34.0 million of corporate development expenses and$17.5 million of restructuring expenses during the three months endedMarch 31, 2022 primarily related to the BMBC Merger. •Balance Sheet
•During the three months ended
•Credit Metrics
•The allowance for credit losses (ACL) on loans and leases increased$41.8 million during the three months endedMarch 31, 2022 , primarily due to an initial ACL of$49.6 million recorded in connection with the BMBC Merger. The initial$49.6 million ACL recorded includes$23.5 million related to non-purchase credit deteriorated (PCD) loans, or the initial provision for credit loss recorded, and$26.1 million related to PCD loans, which did not have an initial income statement impact, but adjusted the amortized cost basis of the loans at acquisition (i.e., a balance sheet gross-up).
•Other Notable Items
•During the three months endedMarch 31, 2022 , WSFS repurchased 938,985 shares of common stock under the Company's share repurchase program at an average price of$50.66 , for an aggregate purchase price of$47.6 million . 52
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FINANCIAL CONDITION
Total assets increased
•Net loans and leases, excluding loans held for sale, increased$3.4 billion primarily driven by the$3.5 billion of loans and leases acquired in the BMBC Merger partially offset by the initial$49.6 million ACL recorded in connection with the BMBC Merger.
•Goodwill and intangible assets increased
•Total cash and cash equivalents increased
•Investment securities, available-for-sale increased$290.6 million during the three months endedMarch 31, 2022 , primarily due to$805.8 million in purchases and$500.4 million acquired in the BMBC merger, partially offset by repayments of$649.3 million and decreased market-values on available-for-sale securities of$363.0 million •Loans held for sale decreased$42.7 million during the three months endedMarch 31, 2022 driven by a combination of lower origination volume and higher loans sales in our mortgage banking business during the three months endedMarch 31, 2022 .
Total liabilities increased
•Total deposits increased
•Other liabilities increased
•Senior and subordinated debt increased
For further information, see "Notes to the Consolidated Financial Statements (Unaudited)."
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Loans and Leases
The following table shows the remaining contractual maturity and rate sensitivity of the loan portfolio by loan category as ofMarch 31, 2022 . Loans may be pre-paid, so the actual maturity may differ from the contractual maturity. Prepayments tend to be highly dependent upon the interest rate environment. Loans having no stated maturity or repayment schedule are reported in the "Less than One Year" category. Less than One to Five to Fifteen Over Fifteen (Dollars in thousands) One Year Five Years Years Years Total Commercial and industrial(1) Interest rate: Fixed$ 55,265 $ 636,469 $ 212,720 $ 49,241 $ 953,695 Adjustable 306,951 855,777 319,383 57,722 1,539,833 Total$ 362,216 $ 1,492,246 $ 532,103 $ 106,963 $ 2,493,528 Owner-occupied commercial Interest rate: Fixed$ 52,833 $ 421,522 $ 427,302 $ 179,205 $ 1,080,862 Adjustable 40,765 249,632 429,806 71,762 791,965 Total$ 93,598 $ 671,154 $ 857,108 $ 250,967 $ 1,872,827 Commercial mortgages Interest rate: Fixed$ 129,174 $ 782,180 $ 377,236 $ 156,579 $ 1,445,169 Adjustable 88,937 693,279 1,038,555 95,302 1,916,073 Total$ 218,111 $ 1,475,459 $ 1,415,791 $ 251,881 $ 3,361,242 Construction Interest rate: Fixed$ 10,405 $ 71,994 $ 39,807 $ 7,624 $ 129,830 Adjustable 344,671 296,165 146,732 6,492 794,060 Total$ 355,076 $ 368,159 $ 186,539 $ 14,116 $ 923,890 Commercial small business leases Interest rate: Fixed$ 6,129 $ 464,049 $ 20,421 $ -$ 490,599 Adjustable - - - - - Total$ 6,129 $ 464,049 $ 20,421 $ -$ 490,599 Residential(2) Interest rate: Fixed$ 10,197 $ 25,606 $ 136,809 $ 487,701 $ 660,313 Adjustable(3) 10 548 29,763 114,692 145,013 Total$ 10,207 $ 26,154 $ 166,572 $ 602,393 $ 805,326 Consumer Interest rate: Fixed$ 2,544 $ 239,898 $ 344,059 $ 295,682 $ 882,183 Adjustable 8,452 47,118 32,763 411,600 499,933 Total$ 10,996 $ 287,016 $ 376,822 $ 707,282 $ 1,382,116 Total loans and leases$ 1,056,333 $
4,784,237
(1) Includes
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Deposits
The following table shows the maturities of certificates of deposit of
(Dollars in thousands) Maturity Period March 31, 2022 Less than 3 months$ 45,342 Over 3 months to 6 months 24,864 Over 6 months to 12 months 47,209 Over 12 months 40,143 Total$ 157,558
The estimated amount of total uninsured deposits as of
LIQUIDITY AND CAPITAL RESOURCES
Capital Resources
Stockholders' equity of WSFS increased$581.4 million betweenDecember 31, 2021 andMarch 31, 2022 . This increase was primarily due to$908.0 million of WSFS common shares issued in connection with the BMBC Merger, partially offset by a decrease of$275.9 million in accumulated other comprehensive income on available-for-sale securities from the effect of decreased market-values,$47.6 million from the repurchase of shares of common stock under our stock repurchase plan, and the payment of dividends on our common stock of$8.5 million . During the first quarter of 2022, our Board of Directors approved a quarterly cash dividend of$0.13 per share of common stock. This dividend will be paid onMay 20, 2022 to stockholders of record as ofMay 6, 2022 . Book value per share of common stock was$38.94 atMarch 31, 2022 , an decrease of$1.79 from$40.73 atDecember 31, 2021 . Tangible book value per share of common stock (a non-GAAP financial measure) was$22.99 atMarch 31, 2022 , a decrease of$6.25 from$29.24 atDecember 31, 2021 . These decreases are due to the same drivers of the increase in stockholders' equity of WSFS described above. We believe tangible book value per common share helps management and investors better understand and assess changes from period to period in stockholders' equity exclusive of changes in intangible assets. This non-GAAP measure should be considered in addition to results prepared in accordance with Generally Accepted Accounting Principles in theU.S. (GAAP), and is not a substitute for, or superior to, GAAP results. For a reconciliation of tangible book value per common share to book value per share in accordance with GAAP, see "Reconciliation of Non-GAAP Measure to GAAP Measure." 55
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The table below compares the Bank's and the Company's consolidated capital
position to the minimum regulatory requirements as of
To be Well-Capitalized
Consolidated Minimum For Capital Under Prompt Corrective
Capital Adequacy Purposes Action Provisions
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
Total Capital (to Risk-Weighted Assets)
Wilmington Savings Fund Society, FSB $ 2,148,722 14.89 % $ 1,154,255 8.00 % $ 1,442,819 10.00 %
WSFS Financial Corporation 2,160,007 14.94 1,156,786 8.00 1,445,983 10.00
Tier 1 Capital (to Risk-Weighted Assets)
Wilmington Savings Fund Society, FSB 2,010,382 13.93 865,692 6.00 1,154,255 8.00
WSFS Financial Corporation 1,845,665 12.76 867,590 6.00 1,156,786 8.00
Common Equity Tier 1 Capital (to Risk-Weighted
Assets)
Wilmington Savings Fund Society, FSB 2,010,382 13.93 649,269 4.50 937,832 6.50
WSFS Financial Corporation 1,845,665 12.76 650,692 4.50 939,889 6.50
Tier 1 Leverage Capital
Wilmington Savings Fund Society, FSB 2,010,382 9.98 805,620 4.00 1,007,025 5.00
WSFS Financial Corporation 1,845,665 9.16 805,790 4.00 1,007,237 5.00
Under the prompt corrective action regime, regulators have established five
capital tiers: well-capitalized, adequately-capitalized, under-capitalized,
significantly under-capitalized, and critically under-capitalized. A depository
institution's capital tier depends on its capital levels in relation to various
relevant capital measures, which include leverage and risk-based capital
measures and certain other factors. Depository institutions that are not
classified as well-capitalized are subject to various restrictions, which may
include restrictions on capital distributions, payment of management fees,
acceptance of brokered deposits and other operating activities.
Regulatory capital requirements for the Bank and the Company include a minimum
common equity Tier 1 capital ratio of 4.50% of risk-weighted assets, a Tier 1
capital ratio of 6.00% of risk-weighted assets, a minimum Total capital ratio of
8.00% of risk-weighted assets and a minimum Tier 1 leverage capital ratio of
4.00% of average assets. In order to avoid limits on capital distributions and
discretionary bonus payments, the Bank and the Company must maintain a capital
conservation buffer of 2.5% of common equity Tier 1 capital over each of the
risk-based capital requirements. As of March 31, 2022 , the Bank and the Company
were in compliance with the regulatory capital requirements and met or exceeded
the amounts required to be considered "well-capitalized" as defined in the
regulations.
Not included in the Bank's capital, WSFS separately held
As part of our adoption of the Current Expected Credit Losses (CECL) methodology in 2020, we elected to phase in the day-one adverse effects on regulatory capital that may result from the adoption of CECL over a three-year period, as permitted under a final rule of the federal banking agencies.
Liquidity
We manage our liquidity and funding needs through ourTreasury function and our Asset/Liability Committee. We have a policy that separately addresses liquidity, and management monitors our adherence to policy limits. Also, liquidity risk management is a primary area of examination by the banking regulators. Funding sources to support growth and meet our liquidity needs include cash from operations, retail deposit programs, loan repayments, FHLB borrowings, repurchase agreements, access to the Federal Reserve Discount Window, and access to the brokered deposit market as well as other wholesale funding avenues. In addition, we have a large portfolio of high-quality, liquid investments, primarily short-duration mortgage-backed securities, that provide a near-continuous source of cash flow to meet current cash needs, or can be sold to meet larger discrete needs for cash. We believe these sources are sufficient to meet our funding needs as well as maintain required and prudent levels of liquidity over the next twelve months and beyond. 56
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As ofMarch 31, 2022 , the Corporation has$2.3 billion in cash, cash equivalents, and restricted cash. Additionally, the maximum borrowing capacity with the FHLB was$5.1 billion with an unused borrowing availability of$5.1 billion . Borrowing availability at the Federal Reserve Discount Window was$253.4 million , and borrowing availability through the overnight fed funds lines totaled$1.1 billion . Our primary cash contractual obligations relate to operating leases, long-term debt, credit obligations, and data processing. AtMarch 31, 2022 , we had$275.0 million in total contractual payments for ongoing leases have remaining lease terms of less than one year to 40 years, which includes renewal options that are exercised at our discretion. For additional information on our operating leases see Note 9 to the unaudited Consolidated Financial Statements. AtMarch 31, 2022 , we had no FHLB advances, and obligations for principal payments on long-term debt included$67.0 million for our trust preferred borrowings, dueJune 1, 2035 , and$150.0 million for our senior debt, dueDecember 15, 2030 . In connection with the BMBC Merger, we assumed debt in the form of$30.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2025 and$70.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2027. We also acquired Royal Bancshares Capital Trust I (Trust I) and Royal Bancshares Capital Trust II (Trust II) (collectively, the Trusts), which were utilized for the sole purpose of issuing and selling capital securities representing preferred beneficial interests. Although WSFS owns an aggregate of$774.0 thousand of the common securities of Trust I and Trust II, the Trusts are not consolidated into the Corporation's Consolidated Financial Statements. Inclusive of the fair value marks, WSFS assumed junior subordinated debentures owed to the Trusts of with a carrying value of$11.6 million each, totaling$23.2 million . The Company records its investments in the Trusts' common securities of$387.0 thousand each as investments in unconsolidated entities and records dividend income upon declaration by Trust I and Trust II.The Company has fully and unconditionally guaranteed all of the obligations of the Trusts, including any distributions and payments on liquidation or redemption of the capital securities. We are also contractually obligated to make interest payments on our long-term debt through their respective maturities. For additional information regarding long-term debt, see Note 12 to the unaudited Consolidated Financial Statements. AtMarch 31, 2022 , the Company had total commitments to extend credit of$3.3 billion , which are generally one year commitments. In 2022, we plan to invest approximately$15 million in our Delivery Transformation initiative to increase adoption and usage of digital channels aligned with our strategy. Our organization is committed to product and service innovation as a means to drive growth and to stay ahead of changing customer demands and emerging competition. We are focused on developing and maintaining a strong "culture of innovation" that solicits, captures, prioritizes and executes innovation initiatives, including feedback from our customers, as well as leveraging technology from product creation to process improvement. 57
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NONPERFORMING ASSETS
Nonperforming assets include nonaccruing loans, OREO and restructured loans. Nonaccruing loans are those on which we no longer accrue interest. Loans are placed on nonaccrual status immediately if, in the opinion of management, collection is doubtful, or when principal or interest is past due 90 days or more and the value of the collateral is insufficient to cover principal and interest. Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed and charged against interest income. In addition, the amortization of net deferred loan fees is suspended when a loan is placed on nonaccrual status. Subsequent cash receipts are applied either to the outstanding principal balance or recorded as interest income, depending on management's assessment of the ultimate collectability of principal and interest. Past due loans are defined as loans contractually past due 90 days or more as to principal or interest payments but which remain in accrual status because they are considered well secured and in the process of collection.
The following table shows our nonperforming assets and past due loans at the dates indicated:
(Dollars in thousands) March 31, 2022 December 31, 2021 Nonaccruing loans: Commercial and industrial$ 7,932 $ 8,211 Owner-occupied commercial 497 811 Commercial mortgages 3,616 2,070 Construction 5,556 12 Residential 3,175 3,125 Consumer 2,311 2,380 Total nonaccruing loans 23,087 16,609 Other real estate owned 1,818 2,320 Restructured loans(1)(6) 12,933 14,204 Total nonperforming assets$ 37,838 $ 33,133 Past due loans: Commercial $ 42 $ 1,357 Consumer (2) 11,581 8,634 Total past due loans $
11,623 $ 9,991 Ratio of allowance for credit losses to total loans and leases(3)
1.19 % 1.19 %
Ratio of nonaccruing loans to total gross loans and leases(4)
0.20 0.21
Ratio of nonperforming assets to total assets 0.18 0.21
Ratio of allowance for credit losses to nonaccruing loans
591 569
Ratio of allowance for credit losses to total
nonperforming assets(5) 360 285
(1)Accruing loans only, which includes acquired nonimpaired loans. Nonaccruing
Troubled Debt Restructurings (TDRs) are included in their respective categories
of nonaccruing loans.
(2)Includes U.S. government guaranteed student loans with little risk of credit
loss.
(3)Represents amortized cost basis for loans, leases and held-to-maturity
securities.
(4)Total loans exclude loans held for sale and reverse mortgages.
(5)Excludes acquired impaired loans.
(6)Balance excludes COVID-19 modifications.
Nonperforming assets increased $4.7 million between December 31, 2021 and
March 31, 2022 . This increase was primarily due to the transfer in of one C&I
relationship totaling $5.5 million during the period, which was partially offset
by several smaller payoffs and the continued collection of principal payments.
The ratio of nonperforming assets to total assets decreased from 0.21% at
December 31, 2021 to 0.18% at March 31, 2022 .
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The following table summarizes the changes in nonperforming assets during the
periods indicated:
Three Months Ended March 31,
(Dollars in thousands) 2022 2021
Beginning balance $ 33,133 $ 60,508
Additions 10,641 13,317
Collections (5,210) (19,604)
Transfers to accrual - (28)
Charge-offs (726) (4,649)
Ending balance $ 37,838 $ 49,544
The timely identification of problem loans is a key element in our strategy to
manage our loan portfolio. Problem loans are all criticized, classified and
nonperforming loans and other real estate owned. Timely identification enables
us to take appropriate action and accordingly, minimize losses. An asset review
system established to monitor the asset quality of our loans and investments in
real estate portfolios facilitates the identification of problem assets. In
general, this system uses guidelines established by federal regulation.
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INTEREST RATE SENSITIVITY
Our primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on net interest income and capital, while maximizing the yield/cost spread on our asset/liability structure. Interest rates are partly a function of decisions by theFederal Open Market Committee (FOMC) on the target range for the federal funds rate, and these decisions are sometimes difficult to anticipate. In response to the economic and financial effects of COVID-19, theFOMC reduced interest rates through 2020 and 2021 and instituted quantitative easing measures as well as domestic and global capital market support programs. TheFOMC raised the federal funds target rate by 25 basis points inMarch 2022 and by another 50 basis points inMay 2022 , and has suggested that it may take steps to raise interest rates several more times in 2022. In order to manage the risks associated with changes or possible changes in interest rates, we rely primarily on our asset/liability structure. Our primary tool for achieving our asset/liability management strategies is to match maturities or repricing periods of interest rate-sensitive assets and liabilities to promote a favorable interest rate spread and mitigate exposure to fluctuations in interest rates. We regularly review our interest rate sensitivity and adjust the sensitivity within acceptable tolerance ranges. AtMarch 31, 2022 , interest-earning assets exceeded interest-bearing liabilities that mature or reprice within one year (interest-sensitive gap) by$2.6 billion . Our interest-sensitive assets as a percentage of interest-sensitive liabilities within the one-year window was 134.71% atMarch 31, 2022 compared with 120.40% atDecember 31, 2021 . Likewise, the one-year interest-sensitive gap as a percentage of total assets was 12.19% atMarch 31, 2022 compared with 7.28% atDecember 31, 2021 . The repricing and maturities of our interest-rate sensitive assets and interest-rate sensitive liabilities atMarch 31, 2022 are shown in the following table: Less than One to Five Five to Fifteen Over Fifteen (Dollars in thousands) One Year Years Years Years Total Interest-rate sensitive assets: Loans: Commercial loans and leases(2)$ 4,002,063 $ 1,496,195 $ 348,996 $ 15,443 $ 5,862,697 Commercial mortgage loans(2) 2,352,855 815,355 194,980 8,553 3,371,743 Residential(1)(2) 193,699 321,202 250,819 61,414 827,134 Consumer(2) 734,768 425,614 195,927 4,520 1,360,829 Loans held for sale(2) 81,103 1,626 2,427 1,581 86,737 Investment securities, available-for-sale 2,537,566 3,178,040 1,789,998 48,372 7,553,976 Investment securities, held-to-maturity 18,005 35,826 31,071 - 84,902 Other interest-earning assets 8,804 - - - 8,804 Total interest-rate sensitive assets:$ 9,928,863 $ 6,273,858 $ 2,814,218 $ 139,883 $ 19,156,822 Interest-rate sensitive liabilities: Interest-bearing deposits: Interest-bearing demand$ 1,646,187 $ - $ - $ -$ 1,646,187 Savings 1,282,990 - - - 1,282,990 Money market 3,287,452 - - - 3,287,452 Customer time deposits 853,117 299,303 2,032 - 1,154,452 Trust preferred borrowings 90,295 - - - 90,295 Senior and subordinated debt 100,492 147,996 - - 248,488 Other borrowed funds 109,606 - - - 109,606 Total interest-rate sensitive liabilities:$ 7,370,139 $ 447,299 $ 2,032 $ -$ 7,819,470 Excess of interest-rate sensitive assets over interest-rate liabilities (interest-rate sensitive gap)$ 2,558,724 $ 5,826,559 $ 2,812,186 $ 139,883 $ 11,337,352 One-year interest-rate sensitive assets/interest-rate sensitive liabilities 134.72 % One-year interest-rate sensitive gap as a percent of total assets 12.19 % (1)Includes reverse mortgage loans (2)Loan balances exclude nonaccruing loans, deferred fees and costs 60
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Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from interest rate risk inherent in our lending, investing, and funding activities. To that end, we actively monitor and manage our interest rate risk exposure. One measure evaluates the impact of an immediate change in interest rates in 100 basis point increments on the economic value of equity ratio. The economic value of the equity ratio is defined as the economic value of the estimated cash flows from assets and liabilities as a percentage of economic value of cash flows from total assets.
The following table shows the estimated impact of immediate changes in interest
rates on our net interest margin and economic value of equity ratio at the
specified levels at
March 31, 2022 December 31, 2021
% Change in Interest % Change in Net Economic Value of % Change in Net Economic Value of
Rate (Basis Points) Interest Margin(1) Equity(2) Interest Margin(1) Equity(2)
+300 31.6% 26.96% 25.1% 24.27%
+200 21.0% 25.43% 16.6% 23.07%
+100 10.3% 23.76% 8.2% 21.76%
+50 5.1% 22.22% 4.1% 20.33%
+25 2.5% 21.87% 2.0% 20.05%
- -% 21.50% -% 19.73%
-25 (2.5)% 21.10% (1.4)% 19.28%
-50 (4.6)% 20.61% (2.2)% 18.72%
-100 (5.8)% 19.42% (3.8)% 17.36%
'-200(3) NMF NMF NMF NMF
-300(3) NMF NMF NMF NMF
(1)The percentage difference between net interest margin in a stable interest
rate environment and net interest margin as projected under the various rate
change environments.
(2)The economic value of equity ratio in a stable interest rate environment and
the economic value of equity ratio as projected under the various rate change
environments.
(3)Sensitivity indicated by a decrease of 200 and 300 basis points is not deemed
meaningful (NMF) given the low absolute level of interest rates in the periods
presented.
We also engage in other business activities that are sensitive to changes in interest rates. For example, mortgage banking revenues and expenses can fluctuate with changing interest rates. These fluctuations are difficult to model and estimate.
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RESULTS OF OPERATIONS
Three months ended
•Net interest income increased$24.4 million during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 , primarily due to the increase in average balances, primarily in loans and leases as a result of the BMBC Merger and mortgage-backed securities. See "Net Interest Income" for further information. •Our provision for credit losses for the three months endedMarch 31, 2022 increased$39.1 million compared to the three months endedMarch 31, 2021 , primarily due to the initial provision for credit losses of$23.5 million recorded in connection with the BMBC Merger. See "Allowance for Credit Losses" for further information. •Noninterest income for the three months endedMarch 31, 2022 increased$12.8 million compared to the three months endedMarch 31, 2021 , primarily due to the increased Wealth Management revenue attributable to the BMBC Merger, partially offset by a decline in our mortgage banking business. See "Noninterest Income" for further information. •Noninterest expense increased$78.8 million during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 , primarily due to increases in corporate development expenses, restructuring expenses, and salaries and benefits. See "Noninterest Expense" for further information. •Income tax provision for the three months endedMarch 31, 2022 decreased$19.7 million compared to the three months endedMarch 31, 2021 , primarily due to the$80.8 million decrease in pre-tax income. 62
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Net Interest Income
The following tables provide information concerning the balances, yields and
rates on interest-earning assets and interest-bearing liabilities during the
periods indicated:
Three months ended March 31,
2022 2021
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate(1) Balance Interest Rate(1)
Assets:
Interest-earning assets:
Loans:(2)
Commercial loans and leases $ 4,851,090 $ 52,466 4.39 % $ 4,138,034 $ 52,620 5.16 %
Commercial real estate loans 4,292,159 40,639 3.84 2,803,378 29,191 4.22
Residential loans 843,699 9,657 4.58 734,593 12,864 7.00
Consumer loans 1,357,970 15,284 4.56 1,159,588 12,836 4.49
Loans held for sale 74,694 835 4.53 161,287 1,341 3.37
Total loans and leases 11,419,612 118,881 4.22 8,996,880 108,852 4.91
Mortgage-backed securities(3) 5,223,794 23,113 1.77 2,507,910 10,704 1.71
Investment securities(3) 330,826 1,321 1.82 336,410 1,449 1.98
Other interest-earning assets 1,721,659 822 0.19 1,103,632 276 0.10
Total interest-earning assets $ 18,695,891 $ 144,137 3.13 % $ 12,944,832 $ 121,281 3.81 %
Allowance for credit losses (134,780) (226,911)
Cash and due from banks 209,730 114,725
Cash in non-owned ATMs 509,568 393,964
Bank-owned life insurance 100,756 32,155
Other noninterest-earning assets 1,638,727 997,444
Total assets $ 21,019,892 $ 14,256,209
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand $ 3,435,377 $ 581 0.07 % $ 2,572,325 $ 618 0.10 %
Savings 2,262,026 162 0.03 1,830,781 150 0.03
Money market 4,092,835 925 0.09 2,682,219 854 0.13
Customer time deposits 1,173,023 1,323 0.46 1,117,191 2,377 0.86
Total interest-bearing customer deposits 10,963,261 2,991 0.11 8,202,516 3,999 0.20
Brokered deposits 63,376 137 0.88 136,957 497 1.47
Total interest-bearing deposits 11,026,637 3,128 0.12 8,339,473 4,496 0.22
Federal Home Loan Bank advances - - - 736 5 2.76
Trust preferred borrowings 90,263 513 2.30 67,011 324 1.96
Senior and subordinated debt 248,565 1,929 3.10 246,654 2,266 3.67
Other borrowed funds(4) 38,396 9 0.10 19,656 5 0.10
Total interest-bearing liabilities $ 11,403,861 $ 5,579 0.20 % $ 8,673,530 $ 7,096 0.33 %
Noninterest-bearing demand deposits 6,450,783 3,490,831
Other noninterest-bearing liabilities 445,855 322,296
Stockholders' equity 2,722,263 1,771,822
Noncontrolling interest (2,870) (2,270)
Total liabilities and stockholders' equity $ 21,019,892 $ 14,256,209
Excess of interest-earning assets over
interest-bearing liabilities $ 7,292,030 $ 4,271,302
Net interest income $ 138,558 $ 114,185
Interest rate spread 2.93 % 3.48 %
Net interest margin 3.01 % 3.59 %
(1)Weighted average yields for tax-exempt securities and loans have been
computed on a tax-equivalent basis.
(2)Average balances are net of unearned income and include nonperforming loans.
(3)Includes securities available-for-sale at fair value.
(4)Includes federal funds purchased.
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Three months endedMarch 31, 2022 : During the three months endedMarch 31, 2022 , net interest income increased$24.4 million from the three months endedMarch 31, 2021 primarily due to the increases in average balances, primarily in loans and leases and mortgage-backed securities. Net interest margin was 3.01% for the first quarter of 2022, a 58 basis point decrease compared to 3.59% for the first quarter of 2021 due to reductions of 30 basis points from lower purchase accounting accretion, 16 basis points from the balance sheet size and mix, and 12 basis points from PPP loans. The following table provides certain information regarding changes in net interest income attributable to changes in the volumes of interest-earning assets and interest-bearing liabilities and changes in the rates for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on the changes that are attributable to: (i) changes in volume (change in volume multiplied by prior year rate); (ii) changes in rates (change in rate multiplied by prior year volume on each category); and (iii) net change (the sum of the change in volume and the change in rate). Changes due to the combination of rate and volume changes (changes in volume multiplied by changes in rate) are allocated proportionately between changes in rate and changes in volume. Three Months Ended March 31, 2022 vs. 2021 (Dollars in thousands) Volume Yield/Rate Net Interest Income: Loans: Commercial loans and leases(1)$ 34,069 $ (34,223) $ (154) Commercial mortgage loans 28,005 (16,557) 11,448 Residential 9,720 (12,927) (3,207) Consumer 2,243 205 2,448 Loans held for sale (2,588) 2,082 (506) Mortgage-backed securities 12,019 390 12,409 Investment securities(2) (22) (106) (128) Other interest-earning assets 209 337 546 Favorable (unfavorable) 83,655 (60,799) 22,856 Interest expense: Deposits: Interest-bearing demand 795 (832) (37) Money market 1,399 (1,328) 71 Savings 12 - 12 Customer time deposits 765 (1,819) (1,054) Brokered certificates of deposits (206) (154) (360) FHLB advances (2) (3) (5) Trust preferred borrowings 126 63 189 Senior and subordinated debt 117 (454) (337) Other borrowed funds 4 - 4 Unfavorable (favorable) 3,010 (4,527) (1,517) Net change, as reported$ 80,645 $ (56,272) $ 24,373
(1)Includes a tax-equivalent income adjustment related to commercial loans. (2)Includes a tax-equivalent income adjustment related to municipal bonds.
Allowance for Credit Losses
We maintain the allowance for credit losses at an appropriate level based on our
assessment of estimable and expected losses in the loan portfolio. Our allowance
for credit losses is based on our historical loss experience that includes the
inherent risk of our loans and various other factors including but not limited
to, collateral values, trends in asset quality, level of delinquent loans and
concentrations. Further, regional and national economic forecasts are considered
in our expected credit losses. Our evaluation is based on a review of the
portfolio and requires significant, complex and difficult judgments.
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During the three months endedMarch 31, 2022 , we recorded a provision for credit losses of$19.0 million , a net change of$39.1 million as compared with the recovery of credit losses of$20.2 million for the three months endedMarch 31, 2021 . The increase was primarily due to the initial provision for credit losses of$23.5 million recorded in connection with the BMBC Merger. The allowance for credit losses increased to$136.3 million atMarch 31, 2022 from$94.5 million atDecember 31, 2021 . The increase was primarily due to an initial ACL of$49.6 million recorded in connection with the BMBC Merger. The initial$49.6 million ACL recorded includes$23.5 million related to non-PCD loans, or the initial provision for credit loss recorded, and$26.1 million related to PCD loans, which does not have an initial income statement impact, but adjusts the amortized cost basis of the loans at acquisition (i.e., a balance sheet gross-up). The ratio of allowance for credit losses to total loans and leases was 1.19% atMarch 31, 2022 andDecember 31, 2021 .
The following tables detail the allocation of the ACL and show our net charge-offs (recoveries) by portfolio category:
Owner-
Commercial and occupied Commercial
(Dollars in thousands) Industrial(1) Commercial Mortgages Construction Residential(2) Consumer(3) Total
As of March 31, 2022
Allowance for credit losses $ 65,716 $ 6,125 $ 23,105 $ 3,145 $ 4,956 $ 33,283 $ 136,330
% of ACL to total ACL 48 % 5 % 17 % 2 % 4 % 24 % 100 %
Loan portfolio balance $ 2,984,127 $ 1,872,827 $ 3,361,242 $ 923,890 $ 809,610 $ 1,382,116 $ 11,333,812
% to total loans and leases 26 % 17 % 30 % 8 % 7 % 12 % 100 %
Three months ended March 31,
2022
Charge-offs $ 3,639 $ 179 $ 37 $ - $ 186 $ 810 $ 4,851
Recoveries 601 126 121 - 386 366 1,600
Net charge-offs (recoveries) $ 3,038 $ 53 $ (84) $ - $ (200) $ 444 $ 3,251
Average loan balance $ 2,949,444 $ 1,901,647 $ 3,387,900 $ 904,258 $ 839,546 $ 1,357,970 $ 11,340,765
Ratio of net charge-offs
(recoveries) to average gross
loans 0.42 % 0.01 % (0.01) % NMF (0.10) % 0.13 % 0.12 %
Owner-
Commercial and occupied Commercial
(Dollars in thousands) Industrial(1) Commercial
Mortgages Construction Residential(2) Consumer(3) Total
As of December 31, 2021
Allowance for credit losses $ 49,967 $ 4,574 $ 11,623 $ 1,903 $ 3,352 $ 23,088 $ 94,507
% of ACL to total ACL 53 % 5 % 12 % 2 % 4 % 24 % 100 %
Loan portfolio balance $ 2,270,319 $ 1,341,707 $ 1,881,510 $ 687,213 $ 546,667 $ 1,158,573 $ 7,885,989
% to total loans and leases 28 % 17 % 24 % 9 % 7 % 15 % 100 %
Year ended December 31, 2021
Charge-offs $ 23,592 $ 83 $ 73 $ 2,473 $ - $ 2,094 $ 28,315
Recoveries 8,756 160 269 - 789 1,131 11,105
Net charge-offs (recoveries) $ 14,836 $ (77) $ (196) $ 2,473 $ (789) $ 963 $ 17,210
Average loan balance $ 2,463,933 $ 1,337,883 $ 1,994,995 $ 775,246 $ 628,411 $ 1,134,569 $ 8,335,037
Ratio of net charge-offs
(recoveries) to average gross
loans 0.60 % (0.01) % (0.01) % 0.32 % (0.13) % 0.08 % 0.21 %
(1)Includes commercial small business leases and PPP loans.
(2)Excludes reverse mortgages.
(3)Includes home equity lines of credit, installment loans unsecured lines of
credit and education loans.
See Note 8 to the unaudited Consolidated Financial Statements and Nonperforming Assets above for further information.
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Noninterest Income
Three months endedMarch 31, 2022 : During the three months endedMarch 31, 2022 , noninterest income was$60.6 million , an increase of$12.8 million from$47.8 million during the three months endedMarch 31, 2021 . The increase was driven by a$15.9 million increase in Wealth Management revenue, of which$13.3 million was attributable to the BMBC Merger. In addition, the three months endedMarch 31, 2022 , included$1.5 million of capital markets income and$1.3 million of insurance income, both attributable to the BMBC Merger. Partially offsetting the increase was a$5.7 million decrease in mortgage banking activities, primarily resulting from the decline in refinancing originations compared to the historically higher levels during the three months endedMarch 31, 2021 .
Noninterest Expense
Three months endedMarch 31, 2022 : During the three month endedMarch 31, 2022 , noninterest expense was$174.5 million , an increase of$78.8 million from$95.6 million for the three months endedMarch 31, 2021 . The increase was primarily due to increases of$31.9 million and$17.8 million of Corporate development expenses and Restructuring expenses, respectively, both related to the BMBC Merger, as well as a$17.8 million increase in Salaries, benefits and other compensation as a result of increased headcount primarily from the BMBC Merger as well as higher salaries.
Income Taxes
We and our subsidiaries file a consolidated federal income tax return and separate state income tax returns. Income taxes are accounted for in accordance with ASC 740, Income Taxes, which requires the recording of deferred income taxes for tax consequences of temporary differences. We recorded income tax expense of$1.7 million during the three months endedMarch 31, 2022 compared to income tax expense of$21.4 million for the same period in 2021. Our effective tax rate was 30.5% for the three months endedMarch 31, 2022 compared to 24.7% for the same period in 2021. The effective tax rate for the three months endedMarch 31, 2022 increased primarily due to reduction in pretax income. While we incurred$0.4 million of tax expense related to nondeductible acquisition costs during both the three months endedMarch 31, 2022 andMarch 31, 2021 , the impact to the effective tax rate was much higher in 2022 due to the lower level of pretax income. The effective tax rate reflects the recognition of certain tax benefits in the financial statements including those benefits from tax-exempt interest income, federal low-income housing tax credits, research and development tax credits and excess tax benefits from recognized stock compensation. These tax benefits are offset by the tax effect of stock-based compensation expense related to incentive stock options, nondeductible acquisition costs and a provision for state income tax expense. We frequently analyze our projections of taxable income and make adjustments to our provision for income taxes accordingly. 66
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